Matter of Love M Inc. v Board of Assessors of the Town of Brookhaven

[*1] Matter of Love 'M Inc. v Board of Assessors of the Town of Brookhaven 2006 NY Slip Op 52581(U) [14 Misc 3d 1239(A)] Decided on June 7, 2006 Supreme Court, Suffolk County Cohalan, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through March 20, 2007; it will not be published in the printed Official Reports.

Decided on June 7, 2006
Supreme Court, Suffolk County

In the Matter of the Application of Love 'M Inc., Petitioner,

against

The Board of Assessors of the Town of Brookhaven and/or The Assessor of the 6 Town of Brookhaven and The Board of Assessment Review, Respondents



28065-05



Attorney for Petitioner:

CERTILMAN BALIN ADLER & HYMAN

90 Merrick Avenue

East Meadow, NY 11554

Attorney for Respondents:

BROOKHAVEN TOWN ATTORNEY

1 Independence Hill

Farmingville, NY 11738

Peter Fox Cohalan, J.

This is an Article 78 special proceeding brought by the Petitioner seeking to reverse, annul and set aside a determination and denial by the Respondents of an application for renewal of a Real Property Tax exemption pursuant to New York Real Property Tax Law §420.

Petitioner, Love 'M Inc., Is the owner of nine (9) parcels of real estate located in the Town of Brookhaven, Suffolk County, on Long Island, New York with each parcel improved with a [*2]residential dwelling being used to house low income and/or homeless families. Petitioner, claiming to be a non-profit entity, had been granted, on each of these nine (9) properties, real property tax exemptions pursuant to Real Property Tax Law §420 until 2005. On March 1, 2005 Petitioner re-filed an application to renew its real property tax exemption on these nine parcels and on April 9, 2005 each of the applications were denied on the basis that the Petitioner was not a "non-profit organization" and therefore not subject to a tax exemption.

Respondent addresses the ruling denying tax exemption status by pointing to a Suffolk County (hereinafter County) audit of a sister agency, Love 'M Sheltering, Inc., (owned and operated by Richard Morrison and Mary Morrison, his wife (hereinafter Morrisons) respectively, the owner and Executive Director of the Petitioner). This audit found that both agencies, while separate corporate entities, were in substance economically interdependent organizations operating as one entity under common management control. The Respondents requested and were refused the requested consolidated financial statements of Love 'M Sheltering Inc., which the Respondents contend is proper because under these circumstances, the presentation of consolidated financial statements for both Love 'M Inc., ( the homeless agency) and Love 'M Sheltering Inc., ( the emergency housing homeless agency) is required by generally excepted accounting principles. It would appear that the County audit was highly critical of the agencies, their financial data, case management and, in particular, the refusal of the Morrisons to provide the financial records of Love 'M Inc. to the County auditor as required. The County audit noted financial irregularities with regard to salary expenditures without documentation, and the relationship between the Morrisons and the real estate being used or leased by Love 'M Inc. and Love 'M Sheltering, Inc., and allegedly owned by the Morrisons.

Petitioner has refused to provide the documentation requested and the Respondents, to support their actions, cite to Real Property Tax Law §420-a which denies real estate tax exemptions. The applicable section states, "real property...shall not be exempt if any officer, member or employee of the owning corporation... shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof... ." Respondents move for corollary relief by way of a notice of motion seeking to compel Petitioner to disclose the records of the two (2) agencies owned and operated by the Morrisons as set forth in their notice to produce, dated February 28, 2006. Petitioner opposes that requested relief.

A review of the deeds of the nine (9) parcels of property clearly indicate that they are owned by the Petitioner, Love 'M Inc., but the Court disagrees with the Petitioner's position that the County audit of the related agency, Love 'M Sheltering, Inc., is totally irrelevant to the instant proceedings. New York State Real Property Tax Law §420-a dealing with non-profit organizations clearly states:

"1. (a) Real Property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational or moral or mental improvement of men, women or children purposes, or for two or more purposes and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by [*3]another corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.(B) Real Property such as specified in paragraph (a) of this subdivision shall not be exempt if any officer, member or employee of the owning corporation or association shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof, except reasonable compensation for services effecting one or more of such purposes, or as proper beneficiaries of its strictly charitable purposes; or if the organization thereof for any such purposes be a guise or pretense or directly or indirectly making any other pecuniary profit for such corporation or association or for any of its members or employees; or if it be not in good faith organized or conducted exclusively for one or more purposes. (emphasis added).

In the County audit, the County auditor specifically noted in the June 8, 2004 audit of the Love 'M Sheltering, Inc., the related or sister agency to Petitioner that for the year 2000;

"The audit disclosed reported salary and fringe benefit expenditures associated with office and maintenance employees that were providing services to both the emergency homeless shelter program and Love 'M Inc., a related not for profit entity that provides permanent housing for the homeless. However, the agency was unwilling to provide us with the Love 'M Inc., supporting documentation necessary to determine the extent of services provided to the related organization and the amount paid, if any, by Love 'M Inc., for the services provided." (Emphasis supplied).

This failure to account for or explain the interrelationship between the two (2) "sister" agencies with common ownership and apparently common "employees" whose services are billed on an unexplained and unapportioned basis to both "not for profit" agencies is fatal to Petitioner's claims that the County audit is irrelevant to either the Respondents' concerns about the Petitioner's tax exempt status or this Court's determination of this petition.

As noted in Beverly Hills Cemetery Corp., v. Rush, et al., 201 Misc 2d 534, 114 NYS2d 793 (1951);

"In construing tax exemption statutes, the courts, in line with what obviously is the legislative policy, have refused exemption unless it clearly appears that the corporation is altogether free from a profit-making purpose. Before an owner may have relief from his or its obligation to pay taxes, it must be shown that both the spirit and letter of the law have been met. Lawrence-Smith School v. City of New York, 166 Misc. 856, 2 NYS 2d 752, affirmed 255 App. Div. 762, 7 NYS2d 486, affirmed 280 NY 805, 21 NE2d 693. An exemption will not be allowed if the organization, though ostensibly non-profit making in character is really a guise or pretense for making profit from its operation.

While the Morrisons are to be commended on their apparent attempts to help, aid and house the homeless and the less fortunate in our society, their attempts to obfuscate, confuse and portray the Petitioner, Love 'M Inc., and Love 'M Sheltering Inc., as totally distinct entities is [*4]disingenuous at best. The fact that both agencies share common ownership and shared employees requires a complete and total opening of the "books, records and other documents" of both agencies and the attempted "compartmentalization" by the agencies to deny access to this documentation for oversight is flawed.

Furthermore, the County audit appears to show some familial dealings between the agencies and "relatives" of the Morrisons with regard to leasing of properties and inadequate documentation about payroll and benefits. Real Property Tax Law §420-a (1)(b) states that "real property owned by a not for profit corporation shall not be exempt from taxation if any officer, member or employee of the owning corporation shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof...". All this material and documentation, including the Suffolk County audit was before both the Tax Assessor and the Board of Assessment Review in reaching the determination to deny tax exempt status to the Petitioner. It is also well settled law "that in a proceeding seeking judicial review of administrative action the court may not substitute its judgment for that of the agency responsible for making the determination, but must ascertain only whether there is a rational basis for the decision or whether it is arbitrary or capricious." Flacke v. Onondaga Landfill Systems, Inc., 69 NY2d 355, 363, 514 NYS2d 689,693 (1987).

The proper standard for a reviewing court is whether the challenged administrative ruling lacked a rational basis for the action taken and was arbitrary and capricious. The Court on review of the petition does not find that the Respondents acted in an arbitrary, capricious manner or abused their discretion in denying the application for the renewal of tax exempt status to these nine (9) parcels of real estate owner by the Petitioner. The Respondents' denial was based upon the finding that the exemption was unwarranted because officers, members or employees of the Petitioner were receiving a pecuniary profit from its operation and the exemption was refused "unless it clearly appears that the corporation is altogether free from a profit-making purpose." Beverly Hills Cemetery Corp., v. Rush, et al., supra.

In light of the Court's ruling upholding the actions of the Town Assessor and the Board of Assessment Review in denying tax exempt status to the Petitioner, the Court need not reach the Respondents' motion on the discovery issue which sought additional documentation of the interrelationship between the two (2) agencies (corporations).

Accordingly, the petition is dismissed.

Settle Judgment

The foregoing constitutes the decision of this Court. [*5]

Date:__________________________

J.S.C.